Climate change uncertainties are one of the biggest risks faced by the insurance industry today and will continue to be a significant risk in the future. The number of European and US insurance firms withdrawing cover from coal projects has more than doubled in 2019. Lloyd’s of London and Asian insurers are now the insurers of last resort for coal projects. This is unsurprising. Coal projects have been gradually phased out in Europe and the US.
However, to power its growing economy, China relies heavily on the world’s largest coal fleet with over 1,000 GW of capacity. By 2021, China plans to add 148 GW of additional coal capacity-as much as the whole of the European Union’s current coal capacity. Coal is a particularly dirty source of energy which, when combusted, releases nitrogen oxides, sulfur dioxide, and particulate matter. These substances are particularly hazardous to human health and an estimated 1.6 million people in China die each year from health issues relating to poor air quality.
Pressure is mounting on China to reduce its carbon dioxide emissions, in line with the 2016 Paris Agreement. Despite investments in renewable energy sources, its new coal-fired power plants increased carbon dioxide emissions by 4% in the first half of 2019. This will make it virtually impossible for China to reduce its carbon dioxide emissions and meet air quality targets set by the government.
China is aggressively pushing forward in the development of electric vehicles. The Chinese government has invested nearly $60 billion to boost the electric vehicle industry in the last ten years. In 2018, electric vehicle sales reached 1.1 million making China by far the largest consumer and producer of electric vehicles. China’s position as a market leader in the production of electric vehicles may appear to be a step in the right direction to reduce its emissions.
Electric vehicles are an important method to achieve emissions targets, but only if they are powered by clean sources. Sadly, China regards EVs more as an opportunity to grow its slowing economy, rather than an opportunity to reduce emissions. Given China’s reliance on coal generation, its EV fleet will not only be the largest, but it will also be the dirtiest on the well-to-wheel measure. These vehicles will end up indirectly increasing carbon dioxide emissions rather than providing the intended environmental benefits.
China is well aware of the environmental consequences of burning coal. However, to meet its current demand for energy, the predictability, cost and availability of coal cannot be matched by renewable energy at this time. The radical changes needed to reduce carbon emissions can only be achieved by divesting from coal, failing to do so may result in complications for China down the line. For instance, Chinese insurers may decide to no longer insure coal projects taking the stance of US and European insurers. Additionally, other countries may impose environmental sanctions. These all could prove to be costly for China unless there is more investment into renewable energy sources.